Howard H. Shafferman
Direct: 202.661.2205
Fax: 202.626.9036
hhs@ballardspahr.com

June 29, 2012

By Electronic Filing

Hon. Kimberly D. Bose, Secretary

Federal Energy Regulatory Commission 888 First Street, N.E.

Washington, D.C. 20426

Subject: Midwest Independent Transmission System Operator, Inc. and

International Transmission Company d/b/a ITCTransmission, Docket No. ER11-1844-000, Cross-Answering Testimony of New York
Independent System Operator, Inc. Witness Robert Pike

Dear Ms. Bose:

The New York Independent System Operator, Inc. submits by electronic filing the

attached Cross-Answering Testimony of Robert Pike (Exhibit NYI-63 for identification), with verification.

The testimony has been served on all parties as required by Rule 2010 of the Commission’s Rules of Practice and Procedure. In addition, two three-hole punched chambers copies are being provided to Presiding Administrative Law Judge Steven Sterner, along
with a summary of the testimony and a first amended exhibit list.

Very truly yours,

/s/ Howard H. Shafferman

Howard H. Shafferman

Cc: Parties of Record

Vintricia Alexander. (Law Clerk to Judge Sterner)

HHS/

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Washington, DC|Wilmington|www.ballardspahr.com

UNITED STATES OF AMERICA
BEFORE THE

FEDERAL ENERGY REGULATORY COMMISSION

Midwest Independent Transmission System

Operator, Inc. andDocket No. ER11-1844-000

International Transmission Company d/b/a ITCTransmission

SUMMARY OF CROSS-ANSWERING TESTIMONY
OF ROBERT PIKE (EXHIBIT NYI-63)

Mr. Pike is Director of Market Design for the New York Independent System Operator, Inc. (“NYISO”).

Mr. Pike’s cross-answering testimony addresses assertions by PJM Interconnection,

L.L.C. (“PJM”) witness Frederick S. (Stu) Bresler, III in his Answering Testimony (“Bresler

Testimony”) that, if the Commission does not reject the MISO’s proposed DFAX cost allocation analysis outright because it is fatally flawed, then the allocation of the cost of International
Transmission Company’s (“ITC’s”) replacement phase angle regulators (the “Replacement
PARs”) at the Michigan-Ontario interface (“MI/ON Interface”) should be based solely on the
peak load hour impacts produced by the MISO’s hypothetical DFAX analysis. Mr. Pike also
responds to the Prepared Direct and Answering Testimony of FERC Staff witness Zugris (at 33) if and to the extent Ms. Zugris’s Direct and Answering Testimony can be read to suggest that
cost allocation for the Replacement PARs should be based solely on the peak hour impacts
produced by the MISO’s hypothetical DFAX analysis.

In his testimony, PJM witness Bresler objects to the inconsistency of MISO/ITC’s

proposed cost allocation method with the method used for new facilities under the Joint

Operating Agreement between the MISO and PJM (the “PJM/MISO JOA”). Mr. Pike explains,

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in response, that NYISO did not participate in the development of, and is not a party to, the PJM/MISO JOA.

Mr. Bresler’s testimony states that the PJM/MISO JOA requires the cost allocation

analysis to be performed using peak conditions in order to identify harmful power flows. Mr. Bresler criticizes MISO/ITC’s use of all flows at all times, rather than at peak load, as an
allocator. In response, Mr. Pike refers to a provision of the PJM/MISO JOA that calls for
adjustment of the model to be used for allocating costs of transmission upgrades, based on the conditions driving the need. The Bresler Testimony appears to assume that the need for all
transmission upgrades will be driven by peak system conditions. However, as shown in exhibits offered in this proceeding, unscheduled power flows around Lake Erie occur under a variety of system conditions, in all hours of the year. Accordingly, Mr. Pike explains it would not be just or reasonable to allocate the costs of the Replacement PARs based on the expected power flows from a single peak hour of a hypothetical 2015 planning case year.

To illustrate, the PARs at the MI/ON Interface (the “MI/ON PARs”) were installed to
prevent the interruption of scheduled energy transactions and to facilitate trading between
Michigan and Ontario by reducing the number of Transmission Loading Relief (“TLR”) actions that disrupt the scheduling of energy transactions between the two regions. Mr. Pike refers to
Exhibit NYI-59 showing that not one of the 2213 MI/ON Interface transactions between Ontario and MISO occurred during a peak hour. Thus, allocation of Replacement PARs’ costs based on system peak would not be consistent with the trading-related benefits that the PARs are expected to provide to MISO and ITC customers.

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Mr. Pike also points out that Mr. Bresler’s examination of the adverse impacts on PJM of operation of the MI/ON PARs to conform actual power flows to scheduled power flows is
premised on an hour-by-hour, rather than peak hour, analysis.

Mr. Pike agrees with the conclusions reached by Commission Staff witness Zugris on

pages 35 and 36 of her testimony, with one possible exception. In that passage of testimony, Ms.
Zugris states that the DFAX method used by MISO is not consistent with the DFAX cost
allocation rules set forth in the PJM/MISO JOA. While the statement may be accurate, Mr. Pike
reiterates that NYISO does not agree (a) that the terms of a JOA that PJM and MISO negotiated
to govern their interaction should be applied to the NYISO, (b) that the PJM/MISO JOA instructs
the use of a cost allocation method that is based on system peak conditions in all circumstances,
or (c) that it would be appropriate to use the system peak allocation that MISO developed to
allocate costs for all 8,760 hours of the year over the useful life of the Replacement PARs.

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Docket No. ER11-1844
Exhibit NYI-63

Page 1 of 11

UNITED STATES OF AMERICA
BEFORE THE

FEDERAL ENERGY REGULATORY COMMISSION

Midwest Independent Transmission System

Operator, Inc. andDocket No. ER11-1844-000

International Transmission Company d/b/a

ITCTransmission

CROSS-ANSWERING TESTIMONY OF ROBERT PIKE

1I.SUMMARY OF TESTIMONY

2A summary precedes my testimony.

4II.WITNESS IDENTITY AND QUALIFICATIONS

5Q.Please state your name, title and business address.

6A.My name is Robert Pike. I am the Director of Market Design for the New York

7Independent System Operator, Inc. (“NYISO”). My business address is 10 Krey

8Boulevard, Rensselaer, New York 12144. My qualifications are described in the

9Testimony of Robert Pike that was filed on May 11, 2012 in this proceeding.

11Q.What topics do you address in your cross-answering testimony?

12My cross-answering testimony addresses assertions by PJM Interconnection, L.L.C.

13(“PJM”) witness Frederick S. (Stu) Bresler, III in his Answering Testimony (“Bresler

14Testimony”) that, if the Commission does not reject the MISO’s proposed DFAX

15cost allocation analysis outright because it is fatally flawed, then the allocation of the

16cost of International Transmission Company’s (“ITC’s”) replacement phase angle

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Docket No. ER11-1844
Exhibit NYI-63

Page 2 of 11

1regulators (the “Replacement PARs”) at the Michigan-Ontario interface (“MI/ON

2Interface”) should be based solely on the peak load hour impacts produced by the

3MISO’s DFAX analysis. I also briefly respond to one statement in the Prepared

4Direct and Answering Testimony of Federal Energy Regulatory Commission

5(“FERC” or “Commission”) Staff witness Zugris.

7Q.In what context are you addressing this topic?

8A.By submitting cross-answering testimony, the NYISO is not conceding that the

9Commission has legal authority under the Federal Power Act to accept the

10MISO/ITC filing, that the Commission has made the findings necessary to permit the

11NYISO to recover PAR-related charges it receives from MISO from the NYISO’s

12customers, or that the collection of any or all the proposed charges - under any

13circumstance - is just and reasonable and not unduly discriminatory or preferential.

15III.NYISO RESPONSE TO PJM’S ANSWERING TESTIMONY

16Q.In the unlikely event that the Commission were to ultimately determine that

17costs associated with the Replacement PARs should be allocated to NYISO and

18PJM customers, does PJM agree with the MISO/ITC proposed cost allocation

19method?

20A.No. The Bresler Testimony (at 29) states that the MISO/ITC proposed cost

21allocation method is inconsistent with the cost allocation method for new facilities

22under the Joint Operating Agreement between the MISO and PJM (the “PJM/MISO

23JOA”).

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1Q.Is the NYISO a signatory to the PJM/MISO JOA?

2A.No.

4Q.Did the NYISO participate in the development of the PJM/MISO JOA?

5A.No.

7Q.Has the NYISO agreed to abide by the terms of the PJM/MISO JOA?

8A.No.

10Q.Have PJM or MISO shown that it is appropriate to apply the terms of a JOA

11that PJM and MISO negotiated to the NYISO?

12A.No.

14Q.What model(s) did MISO use to perform its DFAX analysis?

15A.According to MISO’s Webb/Chatterjee testimony (at 8), the MISO’s DFAX analysis

16relies on planning models from the 2010 Midwest ISO Transmission Expansion Plan

17for the planning year 2015, consisting of a roll-up of modeling data (including

18company loads) compiled by MISO transmission owners. Eastern Interconnection

19Reliability Assessment Group (ERAG) - Multiregional Modeling Working Group

20modeling data was used to represent the PJM, NYISO and Ontario systems. In other

21words, MISO’s DFAX analysis was performed based on a hypothetical 2015

22planning case that incorporated projections of expected load growth, along with

23expected generation and transmission additions. Questions about the MISO’s DFAX

24analysis should be directed to NYISO witness Zachary G. Smith.

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2Q.Does PJM explain its concerns with the MISO/ITC proposed cost allocation

3method?

4A.Yes. The Bresler Testimony states that “MISO/ITC’s cost allocation methodology

5fails to overcome the threshold principle of identifying a problem, i.e., a reliability

6violation or constraint, and then allocating costs to the parties that caused the

7problem based on their relative contribution to that problem.” See Bresler Testimony

8at 29. The MISO/ITC proposed method “is based on the incorrect premise that all

9flows are harmful and each party should be allocated costs based on the total amount

10of flows placed on the MI-ON interface, regardless of whether harm is present and

11regardless of whether any reliability violation is being addressed.” See Bresler

12Testimony at 29-30.

14Q.Does the Bresler Testimony suggest (1) that the PJM/MISO JOA requires

15modeling to be based on peak conditions, and (2) that MISO’s modeling of

16system peak conditions is likely to be more accurate than MISO’s attempt to

17incorporate all hours of the year in its DFAX analysis?

18A.Yes. The Bresler Testimony (at 33) states “…MISO/ITC’s use of all flows at all

19times to establish a forward-looking cost allocation methodology fails to provide a

20levelizing adjustment for variances from actually experienced conditions in actual

21operation and therefore can result in skewed results. There is zero chance that

22MISO/ITC’s estimate of flows will accord with actual conditions due to the high

23variability in the many factors that affect flows on a transmission system. This is in

24stark contrast to the Commission-accepted cost allocation methodology under the

25JOA, which identifies reliability violations at peak load conditions. Peak load

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1conditions are used to identify the harmful flows, and costs are allocated according

2to the model and distribution that corresponds to the conditions under which the

3violation was identified.”

5Q.Have you reviewed Section 9.4.3.2.1(a) of Exhibit PJM-2; Article IX of the

6PJM/MISO Coordinated Regional Transmission Expansion Planning process,

7which is part of the PJM/MISO JOA and cited on pages 28 and 29 of the

8Bresler Testimony?

9A.Yes.

11Q.Do you agree that the method specified in Section 9.4.3.2.1(a) (Cost Allocation

12for Cross-Border Baseline Reliability Projects) of Exhibit PJM-2 instructs the

13use of system peak conditions in all circumstances?

14A.No. That section of the PJM/MISO JOA specifies that “the model [used should be]

15adjusted for the conditions driving the need” for a transmission system upgrade. The

16Bresler Testimony appears to assume that the need for all transmission upgrades will

17be driven by peak system conditions. However, unscheduled power flows around

18Lake Erie occur under a variety of system conditions, in all hours of the year. See,

19e.g., Exhibit No. NYI-4 and Exhibits 1 and 2 to MISO witness Mallinger’s Direct

20Testimony, which chart actual, historical, unscheduled power flows.

22Q.Does the NYISO agree that using the expected power flows from a single peak

23hour of a hypothetical 2015 planning case year would be a just and reasonable

24method of allocating the cost of the Replacement PARs for all 8,760 hours of the

25year, over the useful life of the Replacement PARs?

26A.No. The suggestion that the NYISO, which was projected to serve approximately

2735,000 MW of peak load in the MISO’s DFAX analysis, is expected to have a peak

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1unscheduled power flow impact, measured at the MI/ON Interface, that is nearly ten

2times the peak impact of PJM, which was projected to serve approximately 169,000

3MW of peak load in the MISO’s DFAX analysis, and more than twice the peak

4impact of MISO, which was projected to serve approximately 108,000 MW of peak

5load in the MISO’s DFAX analysis, is not credible. The Bresler Testimony

6recommends the use of an allocation method under which PJM would be assigned

7the least possible responsibility for the Replacement PARs, but does not include any

8evidence indicating that peak hour unscheduled power flow impacts would

9accurately track cost causation over the year, or over the expected useful life of the

10Replacement PARs. The testimony of NYISO witness Zachary G. Smith (at 13-16)

11instead finds that - if any Replacement PARs costs are to be allocated outside of

12MISO (which NYISO strenuously opposes) − a more accurate approach to

13discerning each region’s impact on loop flow would be based on an hour-by-hour

14calculation for each region, for each hour of the year.

16Q.Would it be appropriate to base the cost allocation of the Replacement PARs

17solely on the peak hour of the year?

18A.No. If peak load conditions are used to calculate the cost allocation, but PJM, MISO

19and NYISO customers are expected to contribute to the costs of the Replacement

20PARs based on their operation during all hours of the year, the cost allocation would

21be inconsistent with the expected contribution to Lake Erie unscheduled power flows

22in 8,759 hours out of the 8,760 hours in a year, or more than 99.9% of the time.

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1Q.What types of obligations are frequently assigned using a system peak allocation

2method?

3A.Obligations that are directly related to meeting peak demand are often allocated

4based on peak usage. For example, in New York the NYISO apportions the

5obligation to procure generating capacity in the NYISO’s Installed/Unforced

6Capacity Market based on each Load Serving Entity’s peak load that is expected to

7coincide with the New York Control Area peak load. See section 5.11.1 of the

8NYISO’s Market Administration and Control Area Services Tariff.

10Q.Why wouldn’t it be appropriate to allocate the cost of the Replacement PARs

11based solely on system peak conditions?

12A.Such an allocation would be inappropriate because the problem that the PARs

13installed by ITC and Hydro One at the MI/ON Interface (the “MI/ON PARs”) were

14designed to address is not a peak-specific phenomenon. Unscheduled Lake Erie

15power flows occur 365 days/year, 24 hours/day. As I explained on pages 7-10 of my

16Testimony filed May 11, 2012 in this proceeding, and as ITC witness Capra

17explained on pages 5-6 of his Direct Testimony, one of the primary reasons ITC and

18Hydro One installed the MI/ON PARs was and is to prevent the interruption of

19scheduled energy transactions and to facilitate trading between Michigan and

20Ontario by reducing the number of Transmission Line Relief (“TLR”) actions that

21disrupt the scheduling of energy transactions between these two regions.

22NYISO Exhibit NYI-59 identifies all 2213 of the transactions that were scheduled

23over the MI/ON Interface between Ontario and MISO between January 1, 2009 and

24December 31, 2011 that were curtailed or removed via TLR actions. Not one of the

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12213 instances in which TLR actions curtailed or removed transactions that were

2scheduled over the MI/ON Interface occurred during or affected a peak hour in 2009,

32010 or 2011. PJM’s proposal to allocate the entire cost of the Replacement PARs

4based on system peak would not be consistent with the trading-related benefits that

5the Replacement PARs are expected to provide to MISO and ITC customers.

7Q.How did the Bresler Testimony calculate the impact that operating the MI/ON

8PARs on a flow-to-schedule basis would have on PJM?

9A.Pages 37 to 43 of the Bresler Testimony describe analysis that PJM witness Bresler

10conducted to determine how the operation of the MI/ON PARs to conform actual

11power flows to scheduled power flows would be expected to financially impact PJM.

12Pages 40-41 of the Bresler Testimony explains how the analysis was conducted:

13For each hour of 2010 and 2011 (8,760 hours in each calendar year),

14I retrieved the actual flow across the MI-ON interface as well as the

15scheduled value…. Using these values, I then calculated the loop

16flow in each hour by subtracting the scheduled flow from the actual

17flow. Because this loop flow would still need to travel from its source

18to its sink if the ITC PARs were in place, I estimated the resulting

19impacts of these loop flows traveling along paths alternate to the MI-

20ON interface. For flow in the Michigan to Ontario direction, the only

21alternative path for the circulation is from MISO through PJM into

22NYISO. For flow in the Ontario to Michigan direction, the only

23alternative path is from NYISO through PJM and into MISO.

24Therefore, the impact on the PJM market may be calculated as the

25increased flow through PJM resulting from the ITC PARs operation

26multiplied by the locational marginal price difference at the points

27where that flow enters and leaves the PJM system. Thus, for flow in

28the Michigan to Ontario direction, the PJM impact can be calculated as

29the PJM interface price for NYISO minus the PJM interface price for

30MISO times the MW of flow. Similarly, for flow in the Ontario to

31MISO direction, the PJM impact can be calculated as the PJM

32interface price for MISO minus the PJM interface price for NYISO

33times the MW value of circulation. MW values of flows in a given

34direction where the interface price at the entry point in PJM was

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1lower than the interface price at the exit point would represent a cost

2to PJM due to the increase in congestion. MW values of flows in a

3direction where the interface price at the entry point is higher than

4the interface price at the exit point would represent a benefit to PJM

5because the flow would act to reduce congestion, partially offsetting

6the harmful impacts. These additional flows that would occur across

7the PJM system would displace otherwise economic energy flows.

8Because all market participants pay for congestion costs based on the

9marginal price of that congestion, represented by LMP, the cost of

10supporting these additional flows can be straightforwardly calculated

11as the MW quantity times the LMP differential.

12Thus, to determine the dollar impact of the ITC PARs for each hour

13in 2010 and 2011, I multiplied the hourly value of Michigan -

14Ontario loop flow by the difference between the NYISO and MISO

15interface prices for that hour. The hourly Michigan - Ontario values

16were positive if in the Michigan to Ontario direction, and negative if

17in the Ontario to Michigan direction.

18I then calculated the hourly impact to PJM (“PJM Impact”) as the

19product between the MW of loop flows and the difference in the

20interface prices. A positive result of the hourly calculation of the PJM

21Impact represented an additional cost to PJM, while a negative result

22represented a savings to PJM…. [Emphasis added.]

24Q.Did PJM’s analysis use peak hour impacts to estimate the expected harm to

25PJM of operating the MI/ON PARs on a flow-to-schedule basis in 2010 and

262011?

27A.No. PJM calculated the expected harm or benefit of operating the MI/ON PARs on a

28flow-to-schedule basis for each and every hour of 2010 and 2011. The NYISO

29expects that PJM’s analysis would produce very different results had PJM simply

30taken the peak hour of 2010 and 2011 and extrapolated the impacts calculated for

31those two hours over the entire respective calendar years. PJM has not shown that

32power flows in the peak hour of a year are representative of the operational impacts

33of the MI/ON PARs over the course of an entire year, or over the expected life of the

34Replacement PARs.

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2Q.Does the NYISO agree with the conclusions reached by Commission Staff

3witness Zugris on pages 35 and 36 of her Prepared Direct and Answering

4Testimony?

5A.Yes, with one possible exception. On page 35, lines 13-15 of her Prepared Direct

6and Answering Testimony, Commission Staff witness Zugris notes that the DFAX

7method used by MISO in this proceeding is not consistent with the Commission-

8approved DFAX cost allocation rules set forth in the PJM/MISO JOA. While

9Commission Staff witness Zugris’s statement may be an accurate statement, for the

10reasons explained above, the NYISO does not agree (a) that the terms of a JOA that

11PJM and MISO negotiated to govern their interaction should be applied to the

12NYISO, (b) that the PJM/MISO JOA instructs the use of a cost allocation method

13that is based on system peak conditions in all circumstances, or (c) that it would be

14appropriate to use the system peak allocation that MISO developed to allocate costs

15for all 8,760 hours of the year over the useful life of the Replacement PARs.

17IV.CONCLUSION

18Q.Does this conclude your testimony?

19A.Yes.

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